Many people automatically think of “mortgage” when they hear about buying a home. But not all homebuyers want to deal with interest rates and the long process of home loan acquisition. In fact, paying for a home in cash is more popular than you think.
But in today’s climate, would paying in cash be more advantageous than getting a mortgage?
Let’s take a closer look at some of the advantages and disadvantages of paying in cash to help you evaluate whether this would be a sound choice for you in your future home-buying pursuit:
The Plus Side
Bidding is easily winnable with easy money
In this climate of limited housing supply, it is very possible that one house would have multiple bidders. In this case, a cash offer will more likely get you a deal. Sellers do not have to worry about the buyer’s loan getting denied and it’s fast, easy money.
Equity is all yours
Owning the house outright will not only give you confidence in your finances, it will also help you get easier financing in the future. You can tap into this full equity easily whenever you need some emergency fund later on.
Saves you interest, closing costs, and mortgage insurance
You will not have to pour out money to secure the mortgage, nor will you pay thousands of collective dollars just on interest. The lack of mortgage fees standardly charged for the loan acquisition processing are also weeded out, so you are left with few closing cost.
Avoids hassle of mortgage processing
Mortgage processing takes time. You need to wait for your application to be evaluated, your credit score examined, your home appraised, rate locked, your documents assessed, etc. Plus, you grow anxious at whether you will be approved or not based on varying factors. When you pay in cash, you cut through the process, eliminate the time allocated for these steps, and you are not under the mercy of the banks/lenders.
Steers you away from monthly mortgage obligations
Maintenance, mortgage, taxes, insurance. These are the standard fees you need to regularly put in for your home. Taking out mortgage payment from the equation leads to a lot of savings and significantly lessens financial stress. You can instead reserve that money for your future retirement, or to fund personal expenses.
You can never tell when emergencies could hit. And in the event that the unexpected does happen, fast money is imperative. If you have spent all your available money on paying cash for your home, you may have a problem with contingency. If you’re going to pay cash for your home, make sure you have structured your tappable finances adequately so that there is still some left for the rainy days.
You lose plausible tax deductions
There are tax deductions in mortgage interest payments. When these add up, it could mean significant savings on taxes. This is one thing to consider, especially in today’s low mortgage rate climate.
Limits investment possibilities
If the season is right, and mortgage interest rates have plummeted down to minimum lows, putting your cash reserve on investments with high interest rates may be the smarter way to use that money. Pay attention to the climate, and weigh your return perspective against the risk.
When is the right time to pay in cash?
Knowing the right time to pay for cash for your home is a tricky measure. Figuring it out takes some serious self-assessment and market considerations. But if you have the cash in hand and are not tight on your finances, then take it as a green light. Yet, when it doubt, consult a professional or talk to your financial adviser to get guided opinion.